This is a Guest Post from attorney Ben Snitkoff who originally posted it on the blog Technically Legal. Technically Legal is a blog and podcast run by three technology-focused lawyers and their technology expert: David O’Brien, Dominik Rabiej, Ben Snitkoff, and David Lu.
Two Representatives have introduced a bill in the House aimed at preventing non-practicing entities (NPEs) from using the International Trade Commission (ITC) as a venue for patent disputes.
First, some background. The ITC is an administrative body charged with holding hearings and making adjudications regarding imports into the United States. In addition to its other duties, it may prevent the importation of items that infringe US patents, trademarks, or copyrights. However, in order to prevent importation of infringing articles, a complainant (or plaintiff) in the ITC must prove that there is a domestic industry protected by that IP.
Before 2006, injunctions were regular in patent cases in Federal District Court. If an NPE won a case against an operating company, the NPE would almost certainly get an injunction, causing substantial damage to that company. The risk of facing an injunction was a powerful force in driving operating companies to settle cases. If the alternatives are pay money or shut down, many companies would opt to pay.
After the eBay v. MercExchange case, obtaining an injunction in District Court became more difficult, particularly in cases where the plaintiff was an NPE. However, the ITC is a creature of statute, and doesn’t play by the same injunction rules. If a complainant wins a case in the ITC, they automatically get an importation ban against at least the parties found to infringe. However, in order to win the case, you must prove that there is a domestic industry in products protected by the patents the other parties infringe. The most obvious case is that the complainant makes a product protected by a patent, and the respondents are importing devices that infringe that same patent.
After revisions to the statutes that govern the ITC in 1998, complainants could prove that there was a domestic industry by showing that they made substantial investments to license other parties to their patents, or that people who have licenses also have products that practice the asserted patents.
In recent years, investigations filed by NPEs have accounted for a growing percent of investigations before the ITC, and the call for reform has been growing.
The bill introduced in the House purports to be that reform. However, whether the bill would be effective is questionable, particularly because there is no word yet of a corresponding bill introduced in the Senate.
There are several immediate problems with the bill. First, the bill attempts to modify the ability to rely on licensing by replacing the word “licensing” with:
substantial investment in licensing activities that leads to the adoption and development of articles that incorporate the patent, copyright, trademark, mask work, or design
This provision is, at best, inartfully drafted. “Articles that incorporate the patent” has no clear meaning in case law. Similarly, with “incorporate the . . . copyright.” This invites litigation over the meaning of the term when it could be more clearly stated as:
substantial investment in licensing activities that leads to the adoption and development of articles that practice the patent, embody the copyrighted work, or incorporate the trademark, mask work, or design
It is also not very clear what the drafters mean by “adoption and development” and why both actions are necessary, as long as there is “substantial investment” in those articles.
The bill proceeds to put in statute, with some modifications, some recent rule making changes in the ITC which allowed a preliminary investigation with respect to domestic industry. However, the short-description of the bill and the bill itself disagree on the timing. The 1-pager says that “once a preliminary investigation in initiated, requiring [sic] an early initial determination as to the DI standing of a complaint within 45 days.” However, the bill requires that “The Commission shall render its determination in the preliminary investigation under this paragraph not later than 45 days after the filing of the complaint.”
Typically, in ITC practice, an investigation is not initiated until thirty days after the complaint is filed. Additionally, forty-five days is less than half the time the Commission has previously allotted for these preliminary investigations. It seems virtually impossible to allow the parties to conduct discovery, submit briefing, hold a preliminary hearing, and issue a written opinion within either forty-five days of filing, or even forty-five days after a preliminary investigation was initiated.
Finally, even in cases where a complaint fully proves their case, the ITC may choose not to exclude certain articles for importation if it was not in the public interest. Those rare cases were traditionally limited to cases where public safety and welfare were endangered by an importation ban. This bill expands the public interest to include competitive conditions in the United States. This section appears to accomplish what it sets out to do, though the ITC’s Administrative Law Judges may be reluctant to hold that the importations of consumer luxury goods rise to a level of public interest so important as implicate these new guidelines.